A Warning Sign from the Transport Sector?

Margins are falling in the transportation sector. FedEx miscalculated holiday demand by a long shot, and UPS and FedEx are barely treading water when it comes to keeping up with rapid increases in the demand for e-commerce. Paul Ziobro writes for The Wall Street Journal:

Both FedEx and rival United Parcel Service Inc. are struggling to keep pace with the dramatic growth of e-commerce. While more people doing their shopping online is bringing added volume into their networks, both are spending heavily to build out package-sorting centers and automating facilities to handle the extra deliveries more profitably.

Both chains are also eyeing the ambitions of Amazon.com Inc., which is grabbing retail share and slowly building its own delivery network. While that could cut into FedEx’s e-commerce business, the company says that 85% of its operation is business-to-business deliveries.

“We think we have a not-great risk of being disrupted,” FedEx Chairman and Chief Executive Fred Smith said.

FedEx backed its outlook for the fiscal year, and implied a healthier fiscal fourth-quarter as the carrier now adjusts fuel surcharges weekly instead of monthly so it can better respond to fluctuating costs. The company cut its capital spending outlook for the year by $300 million to $5.3 billion, as it reduces spending in its ground business.